Prosper Company is a footwear company which operates two product divisions, shoes division and sandals division Selected data on the two divisions are as follows Divisions Shoes Sandals Sales $3 140 000 $1 975 000 Variable cost $1 570 000 $1 105 000 Fixed Cost $1 250 000 $750 000 Average Operating Asset $1 600 000 $700 000 Current Liabilities $300 000 $190 000 Required Rate of Return 15 10 Required 1 Calculate return on investment (ROI) for each division By breaking the computation into two separate elements margin and turnover Use net operating income as a measure of income and average operating assets as a measure of investment 2 Compute the residual income for each division of Prosper Company 3 Assume that each division is presented with an investment opportunity that would yield a 15 rate of return a If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity b If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity 4 Prosper Company, whose tax rate is 25 , has weighted average cost of capital of 9 All of the company's Assets are Operating Assets Compute Economic Value Added (EVA) for each division

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Prosper Company is a footwear company which operates two product divisions, shoes division and sandals division  Selected data on the two divisions are as follows  Divisions Shoes Sandals Sales $3 140 000 $1 975 000 Variable cost $1 570 000 $1 105 000 Fixed Cost $1 250 000 $750 000 Average Operating Asset $1 600 000 $700 000 Current Liabilities $300 000 $190 000 Required Rate of Return 15  10  Required  1  Calculate return on investment (ROI) for each division By breaking the computation into two separate elements margin and turnover  Use net operating income as a measure of income and average operating assets as a measure of investment  2  Compute the residual income for each division of Prosper Company  3  Assume that each division is presented with an investment opportunity that would yield a 15  rate of return  a  If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity  b  If performance is being measured by residual income, which division or divisions will probably accept or reject the opportunity  4  Prosper Company, whose tax rate is 25 , has weighted average cost of capital of 9   All of the company's Assets are Operating Assets  Compute Economic Value Added (EVA) for each division

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Prosper Company is a footwear company which operates two product divisions, shoes division and sandals division. Selected data on the two divisions are as follows:

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